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Zions (ZION) Q2 Earnings: Will Higher Provisions Hurt Again?

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Zions Bancorporation (ZION - Free Report) is slated to report second-quarter 2016 results on Jul 26, after the market closes.

Last quarter, Zions’ earnings lagged the Zacks Consensus Estimate, mainly due to higher provision for loan losses, a rise in operating expenses and a slight fall in non-interest income. These were partly offset by an improved net interest income.

Further, Zions has a decent surprise history, as indicated from the chart below:

ZIONS BANCORP Price and EPS Surprise

ZIONS BANCORP Price and EPS Surprise | ZIONS BANCORP Quote

Earnings Whispers

Will rising provisions related to the exposure to energy sector be the major factor hurting Zions’ financials? Or will the company be able to overcome industry challenges? Let’s check what our model indicates:

Our proven model does not conclusively show that Zions is likely to beat earnings in the second quarter. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) to have a significantly higher chance of beating earnings. However, this is not the case as elaborated below:

Zacks ESP: The Earnings ESP for Zions is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 42 cents.

Zacks Rank: Zions carries a Zacks Rank #3. This increases the predictive power of ESP, but we need to have positive Earnings ESP to be sure of earnings beat.

Additionally, Ameriprise’s activities during the quarter were inadequate to win analysts confidence. Over the last seven days, the Zacks Consensus Estimate remained stable.

Factors to Influence Q2 Results

Provisions to Remain Elevated: Zions’ oil and gas-related exposure remains a matter of concern amid a stressed energy situation. Hence, provisions related to energy loans should remain elevated in the quarter.  Management expects provision to be similar to the first-quarter 2016 level of $42 million, on the assumption that energy prices remain near current levels.

Stable Expense Base: Zions projects non-interest expenses to trend lower year over year, driven by benefits from business simplification. Nonetheless, as the company continues to invest in the franchise, overall operating expenses should remain stable during the quarter.

Revenue Growth to Continue: Management projects net interest income (NII) to trend up driven by reduction in interest expenses and benefits from the Dec 2015 rate hike. This is based on the expectation of no further rise in rates this year. Further, a low-to-mid single-digit loan growth attributable to rise in consumer and commercial and industrial loans will support NII.

Additionally, the company projects a moderate rise in non-interest income (excluding dividends and securities gains/losses) during the quarter. Therefore, overall revenues are expected to increase during the quarter.

Stocks That Warrant a Look

You may want to consider a few finance stocks, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.

Earnings ESP for Cullen/Frost Bankers, Inc.  (CFR - Free Report) is +0.96%. The company carries a Zacks Rank #3, and is slated to report on Jul 27.

LPL Financial Holdings Inc. (LPLA - Free Report) , which is expected to report on Jul 28, has an Earnings ESP of +2.33% and a Zacks Rank #3.

Federated Investors, Inc. has an Earnings ESP of +2.13% and a Zacks Rank #3. The company is slated to release results on Jul 28.

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